Regional Development:
Rich Europe, poor Europe

Numerous national and European programmes have yet to succeed in eradicating major disparities between the rich and poor regions of the continent — a situation that may lead to funding cuts in the context of the current economic crisis.

Even in countries where schemes to reduce regional disparities have been in operation for several decades, the results are less than spectacular. Now, the findings of a recent Eurostat study have quantified the scope of the wealth-gap that remains between richer and poorer areas of the European Union. The City of London rests at the high end of the scale, with a per capita GDP in the City of London is 334% of the EU average--more than a dozen times greater than per capita GDP in north western Bulgaria, which is just 26% of the EU average.

Peculiar parallels and unexpected variations

The statistics bring to light some peculiar parallels and some unexpected variations. In Germany, for example, per capita purchasing power in the state of Saxony-Anhalt is more or less on par with Estonia or richer regions of Greece. However, a huge disparity emerges if we compare the city of Chemnitz in Saxony, where per capita GDP stands at 82% of the European average, and Hamburg, where it is more than twice as high, at 192%.

A similar situation prevails in Spain, where residents in Andalusia and Murcia in the south of the country produce 82% of the average per capita GDP, while their fellow citizens in Madrid and Catalonia can expect to generate 136% and 123% of the European average.

Germany leads way

However, these numbers appear moderate when compared with the figures for Italy, where regional differences are even more polarised. Per capita GDP falls as you travel south along the Italian peninsula. In Piedmont and Lombardy (Milan and Turin), this indicator stands 134% and 119% of the EU average, respectively, while in Campania (Naples), it remains only slightly higher than 65%.

Without a doubt, the German federal government has done more than any other national administration to address the problem of regional disparities. Over the last 20 years within the framework of the “German Unity Fund” and Solidarity Pacts, the East German Länder have received almost 1.5 billion euros. Under the Aufbau Ost programme for the economic reconstruction of the former DDR, the federal government has financed retirement payments, welfare benefits and the construction of new roads and urban infrastructure, all in the hopes of facilitating further investment.

Federal government’s job policy an unmitigated failure

This transformation becomes apparent when you take the motorway from the East to the West of the country. And it has been on such a scale that some western regions and major industrial centres have begun to worry about lagging behind more dynamic states in the East.

Yet average GDP in the East German Länder only amounts to 71% of West-German GDP, and the same disparity is reflected in average incomes. At the same time, the federal government’s job creation policy has been an unmitigated failure, as the rate of unemployment in the East remains twice as high as it is in the West.

Andalusia provides interesting illustration

Politicians in Germany’s CDU-CSU and FDP ruling coalition are growing weary of the endless promotion of the country’s eastern provinces. Matthias Platzeck, the social-democrat Minister President of the state of Brandenburg, has warned that there is no majority support for plans to continue the Solidarity Pact beyond 2019.

In Spain, Andalusia provides an interesting illustration of the impact of EU structural funds, which have been heavily tapped by the regional government in Seville, just as they have been in Poland. However, the development programmes in this part of Spain, which were undertaken between 1980 and 2000, have done relatively little to boost the local economy. Studies conducted by economists in Malaga Cadiz have shown that funds from both the national government and from Europe have yet to result in development on a scale comparable with the north of the country.

Sharper north-south divide in Italy

In recent years, the drive to improve conditions for small and medium-sized companies has become the main priority for Andalusian development, which has historically been oriented primarily toward the tourist industry (11% of GDP). For the period 2007-2013, Andalusia will benefit from 15 billion euros of European funding — just part of the 41% EU funding allocated for Spain that is spent on the south of the country. The results, however, have yet to measure up to Brussels’ bold objective of a 2.4 % increase in Andalusian GDP.

An even sharper north-south divide exists in Italy, where the beautiful motorways in the country's economic heartland centred on Turin and Milan are in marked contrast to the dilapidated roads around Naples. This situation, moreover, has persisted in spite of the 140 billion euros spent by the Italian government’s Fund for the South (Cassa per il Mezzogiorno) initiative in effect from 1951 to 1992. The programme was so catastrophic, it even attracted the attention of the International Monetary Fund, which expressed concern over its impact on Italy's public finances and eventually pressured the Italian government to withdraw it.

Brussels wary of another Mezzogiorno

The European programmes, which to some extent have replaced the Cassa per il Mezzogiorno, have not been marked by any great advances in efficiency. As Francesco Aiello of the University of Calabria explains, they had a small effect on per capita GDP, but their impact remains very weak.

Not surprisingly, Brussels has always been wary of the possibility of another "Mezzogiorno," which could turn into a black hole for public funds. Now, with the recent economic crisis having made debt reduction a priority for most EU member states, even more credible programmes to reduce regional disparities may see their funding cut.

Fraud

Open season on white elephants

"Concrete deserts financed by the EU:" Die Presse lambasts the numerous wildcat construction projects financed by EU regional funds. In the most recent scandal, which was revealed by the Financial Times on 6 July, 24 hotels, eight of which qualified for 23.6 million of EU funding, have been built without planning permission on the Canary island of Lanzarote, which is classed as a protected biosphere by UNESCO. The daily also rails against an artificial beach on Lake Como, the fictional construction of an agritourism centre in Liguria, and the building of a villa for tourists in Lower Saxony — a region that is unknown as a holiday destination.

The European Commissioner for Regional Policy, Austria’s Johannes Hahn, is preparing to conduct an investigation into these abuses. But as Die Presse explains, "the real culprits are not in Brussels but in the capitals and regional capitals of member states.” The EU, which provided finance for approximately two million projects between 2000 and 2006, does not play an active role in the management of projects with budgets of less than 50 million euro. The daily notes that Johannes Hahn will need a green light from Europe’s member states if he is to succeed in bringing the fraudsters to justice.

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